VESTED 78-79c

CHINA’S SHIPBUILDING industry may be about to show some tentative signs of recovery, the South China Morning Post reported yesterday (June 23).

That spells potentially good news for Singapore-listed shipbuilders such as COSCO and Yangzijiang.

“We may see some orders for large ships for Chinese shipyards before the end of the year,” said Russell Barling, Asia corporate communications manager at Lloyd’s Register, the world’s No.2 ship classification society by order book.

Stimulus measures for the industry announced by Beijing in the past few months and optimism that the global recession might be bottoming out were key reasons for the more optimistic outlook, Mr Barling was quoted as saying.

“There are now inquiries going to Chinese shipyards for larger ships. There haven’t been many inquiries for larger ships for a long time, but now we’re seeing them within the past month,” Mr Barling said.

The measures include facilitating bank credit for shipbuilding.

Charles de Trenck, an analyst with consultancy Transport Trackers, was quoted as saying that China might see a recovery in shipbuilding orders later this year if oil-producing countries such as Iran placed orders for tankers.

I saw in last Sunday (21 June 09) Channel 'U' TV documentary "MoneyTalk" featuring Yangzijiang Shipbuilding. The chairman of the company claimed that they do not have any order cancellations so far from last year until now. They said they have strategies already in place to prevent order cancellations from their clients such as helping their clients to secure loans in order to buy their ships, or allowing deferred payment for their ships. In addition, he also said that their order books will leave them busy for at least the next 3 to 4 years. So, on hindsight, I think this shipbuilder really has been able to weather this financial storm until now. If not, why will it not conserve cash (most rational thing now to do for companies) and still does share buy back last December? Share buy back suggests that this shipbuilder company must be very confident with it's business going forward and buying back it's own shares at low share prices is a smart move to retreat the amount of common shares on the market at such opportunate time. This benefits it's remaining shareholders with a potentially higher earnings per share, dividends per share and returns on equity moving foward.

Of course, much remains to be seen from it's business performance for this year. Based on it's first quarter results, I think it has made decent profits. Investors in this company should still continue to monitor it's business performance.